By Kendall Rawls, Director of Development, The Rawls Group
Succession planning is often feared as complex, and with good reason. It is a multifaceted process involving a variety of interdependent areas that impact the other. Because of these complexities, general misconceptions around succession planning get created. However, it is important to understand that these are just that, opinions based on faulty understanding.
Overcoming the fear of the complex and understanding succession planning, enables you to have greater control of the future of your business. In its most simple form, succession planning is defined as identifying and securing the future successor of your dealership. So naturally, with this, many dealers assume its only about their potential exit or retirement. However, if you know of and address the interdependent issues of succession planning, you’ll see it’s not as complex as once feared.
Consider the thought process when you are talking with your advisors about ensuring your will and estate are in order. When you go down this road, the last thought is about when you should unfortunately die. In actuality, you are focused on IF something untimely should happen and wanting to make sure you and yours are taken care of. You are ensuring your family, business partner(s), etc., are all properly informed of your intentions and adequately protected financially for the future without you. Succession planning is really no different.
When you engage in the process with advisors on your actual will and estate plan, it is something you know you are not going to accomplish in a silo or overnight. You are aware that there are steps and processes and a myriad of variables you must take into consideration, and that it takes time to get things exactly where you want them to be. And, you also realize that even when things are finalized, things may come along to cause changes to your original intentions or wishes. Succession planning is really no different.
Breaking down the succession planning complexities and the myth it is only about your eventual retirement or death, let’s explore five common misconceptions.
Misconception #1 — I’m All Taken Care Of
The three general beliefs we hear from dealers are that you have everything all taken care of, that your estate and exit strategy are in order, and that your attorney and CPA have you covered. In these areas you may have ultimate confidence you are all set, however, what you do not know can crush your long-term business goals and ability to continue building business value.
Due to ever-changing goals, interests, finances, family dynamics, tax laws, and feelings, a plan that fits your business and family today may not work for you tomorrow. Although there’s no one-time event or finish line where you can have it all done, there are definite milestones to celebrate.
Misconception #2 — Succession Planning Means Retirement Planning
Succession planning often fuels a myriad of emotions. There is fear you are being pushed out or as mentioned earlier succession is all about retirement and you’re not ready, or what tends to be the more common is that you are not ready to give up control.
While all of these are valid emotions and should not be minimized, succession planning is not about retirement or planning for death. It is about maintaining control planning, fulfilling long-term business/family dreams planning, building business value planning.
Misconception #3 — Succession Planning and Business Growth Aren’t Related
Succession planning is not about you leaving the business. It is about building a foundation of success today that will set the course for future generations. Your dealership may be in a “good spot,” so you’ve put succession planning on the back burner. But not having an eye on the future can be a dangerous thing. Before you make that next deal or continue with your growth plan, you should ask yourself a few vital questions:
1. Do I have the full support of my management and leadership?
2. Do I have the excess capital and resources that growth requires?
3. Do I have the confidence that my successor(s) will be able to manage what I’m building?
All these questions can be answered through the process of succession planning. This will ensure that your growth is done the right way at the right time.
Misconception #4 — I’m Too Young to Think About Succession Planning
Translation: “I am bulletproof, and have no intention of dying prematurely; I am not interested in enhancing business productivity, profitability, and teamwork; the business is all about me; and I am not interested in protecting the value of my business and the welfare of my family.”
Believe it or not, these phrases are commonly muttered by individuals ranging from age 30-70, but typically from younger dealers who feel they are invincible. As entrepreneurs, we inherently have some superhero tendencies, it’s required to go into the risky business of owning a dealership. This should not get in the way of building business value. Unfortunately, it takes one tragic event to motivate these individuals to act with regard to their succession plan and ultimately protecting, maintaining, and building value. Stating that you are too young to begin succession planning is like saying you are too old to go on vacation.
Think about it, the vast majority of privately-held businesses have more than 80 percent of their net worth tied up in closely-held stock and real estate. Whether you like it or not, your financial wellbeing and that of your family and employees are dependent upon you.
The reality is you are never too young to begin. Many lives are impacted by your business, including family, managers, employees, vendors, lenders, etc. There is never a better time to begin than now. By avoiding the process, you are leaving a lot of opportunity on the table for purposeful business growth. The succession planning process prepares your business to take advantage of opportunities you otherwise may not have realized are available to you.
Misconception #5 — A Succession Plan Isn’t Needed If I Plan to Sell
The thought that plans to sell your business may negate the need for succession planning. Unfortunately, this is a dangerous path, it has a direct impact on the amount of cash you’ll have in your pocket when you do sell the business.
Business value is dependent upon the predictability that the earnings will continue after a transfer of ownership occurs, whether by sale, gift or estate bequest. Prospective buyers, banks, Wall Street, and estate tax auditors all recognize that value is not all about today’s earnings but more about your foundation and ability to generate revenue tomorrow, and into the future. Any improvement you can make in the 10 different perspectives of the Succession Matrix® will build value in your business.
Succession planning involves much more than addressing your estate and exit plan. While both are important components, they represent a small percentage of issues that impact the current and future success of your business.
About the Author
Kendall Rawls knows and understands the challenges that impact the success of an entrepreneurial owned business. Her unique perspective comes not only from her educational background; but, more importantly, from her experience as a second-generation family member employee of The Rawls Group – Business Succession Planners.
